Smiths City says it has no choice but to pass on a rise in GST to customers, because margins remain so slim.
The listed Christchurch-based retailer made $1.64 million in the year to the end of April, a rise of more than 60% on the previous year.
However, managing director Rick Hellings says, the improved profit is off a very low base and wouldn't be acceptable under normal trading conditions.
He says the company doesn't have a lot of room to absorb additional costs such as a GST rise.
Mr Hellings says the company has been focussing on improving its operations, which should improve profitability in coming years.
Smiths City has closed a couple of small loss-making operations, but has opened two stores in the Wellington region during the year and is looking to open more, he says.
Mr Hellings says changes to depreciation, and the corporate tax rate, will increase its tax bill by $1.9 million in the 2011 year.
However the change is a one-off, non-cash accounting entry, which won't affect its underlying profitability, cash flows or dividend policy.